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Saudi Arabia: Building the kingdom

6 May, 2009 | By Adrian Hornsby

Oil-rich Saudi Arabia’s 25 million residents are in desperate need of affordable housing and non-oil jobs – a massive demand that work-hungry architects are gagging to supply. A special report by Adrian Hornsby

What to do with over 20 per cent of the world’s oil is really a teaser. You can’t possibly use it, so the first thought is to convert it all into cash. But one trillion dollars isn’t all that useful when it’s tunnelled into foreign stocks caroming up and down in value. So the thinking is, use the cash to buy cities and they start generating their own cash – then you’re riding the gravy train.

So Dubai figured, when it began unfurling a gleaming metropolis into an almost arbitrary desert. This seemed so brilliant at the time that Reinier de Graaf, partner at OMA, said Dubai had proven ‘the obsolescence of demographics to city-building’. Unfortunately, what the credit crunch is rapidly proving is the obsolescence of the Dubai approach.

The oil-rich Kingdom of Saudi Arabia, however, is quintessentially different to Dubai. Firstly, 25 million people live there already, and this population is growing at 2.5 per cent a year, meaning it will double in 28 years. Moreover, recent decades of 4 per cent population growth have bequeathed an astonishingly young demographic: 40 per cent of Saudi nationals are under the age of 20 and 70 per cent are under 30. On top of that, 65 per cent of families don’t own a home.

Uniquely among Gulf Cooperation Council (GCC) states, there are an awful lot of people in Saudi Arabia genuinely looking to buy a building. Demand is variously quoted at 200,000 homes a year, with a current 500,000-home deficit, and thus one million new homes needed within the next five years. What’s more, a new law, which will eventually allow mortgages for the first time, comes into effect later this year.

Rush to Riyadh

While the rest of the Gulf is folding up, there’s a supply bottleneck in Saudi Arabia. This has shifted the focus – and for a number of practices, the offices and personnel – from Dubai and Abu Dhabi to the Saudi Arabian capital of Riyadh. Firms already there are expanding, and others with a toe in the Gulf are dropping their Dubai registrations to take up Saudi forms. The impetus is only strengthened by a general recognition of the need to show your face. As Jacob Kurek, principal of Henning Larsen Middle East, puts it: ‘If they can’t see you, they don’t trust you.’ The natural corollary is an exodus from cash-strapped states to the oil-rich kingdom.

While Saudi Arabia, crudely speaking, has the moolah, a lot of Saudis don’t. The oil wealth is spread far thinner here than across the rest of the Gulf (and naturally concentrated among the 30,000 son-strong descendents of King Abdul Aziz Al-Saud), meaning that the power growth is not in luxury villa parks, but in low to middle-income housing.

Danish firm Schmidt Hammer Lassen recognised this ballooning opportunity, and entered Saudi Arabia on a platform of cheap residential buildings. The practice’s Saudi housing operations are based on mobile factories producing on-site precast elements, ready for assembly into a variety of possible structures, ranging from one to eight storeys, all packed with quality low-cost units.

The roll-out is envisaged across multiple sites of between 500,000 and one million square metres around Riyadh, to create a swathe of urban communities. But the potential application is far wider. With signature Scandinavian bathos, Schmidt Hammer Lassen international commercial manager Carsten Hyldebrandt describes this as ‘our small niche’ in the Saudi boom.

Hyldebrandt acknowledges that working in one of the world’s most authoritarian states is ‘definitely very… let’s see… special’. Aside from visa and bureaucratic issues, demands upon architecture are heavily influenced by cultural singularities. For one, the masterplanning yardstick is the walk to the mosque.

Privacy is a major concern, with most residencies in Riyadh encircled by 2.5m walls. Within dwellings, sex segregation needs to be considered, often meaning the provision of three bathrooms, different types of bedrooms, and allowances for men and women to eat separately. Women aren’t permitted to drive, so pick-up locations have to be carefully considered. Schmidt Hammer Lassen’s precast construction system is aimed at producing a range of community developments, each tailored to varying levels of conservatism among Saudi would-be homeowners.

Homes and jobs

Beyond housing, the employment outlook for young Saudis is at least as exigent. Estimates run toward 30 per cent unemployment among young males (women barely count), and government bodies (where employed Saudis overwhelmingly work) are thought to be grossly overstaffed. From this situation stems a second huge reserve of demand.

Efforts to diversify the economy away from oil have long been high on the Saudi agenda. After a brief foray into desert agriculture, yielding the most expensive wheat in the world, early interests turned to industry. Revenues from the 1970s oil boom were used to found the industrial cities of Jubail and Yanbu – dubbed the largest civil engineering projects in modern times – and expansions continue today, with proposals for Jubail II and Yanbu II, plus 14 more industrial clusters.

The current development approach for these industrial hubs rests on the Saudi Industrial Property Authority (Modon), which rolls out vast infrastructure to the proposed sites, and then the Saudi Industrial Development Fund (SIDF), which offers soft-loans to help factories set up. Anticipated investment into these zones over the next 10 years runs to well over £70 billion, with over 500km² of greenfield land allocated.

Substantial as such developments may be – revenue from Jubail already accounts for 7 per cent of Saudi Arabia’s GDP – they fail on two conspicuous fronts. Firstly, they are invariably hydrocarbon-dependent or hydrocarbon-subsidised and fall short of the diversification away from oil objective. Secondly, they create comparatively few jobs, and most are of little use due to the almost complete absence of a Saudi working class.

General expectations of feather-bedded government positions have kept blue collars off white Saudi robes, so domestic unemployment continues to rise, while the industrial and construction labour force is populated by immigrants from surrounding third-world nations. As a consequence, King Abdullah is looking increasingly toward creating more sophisticated urban environments. Alongside the raw industrial developments is a proposal for at least four ‘economic cities’ for clean, drive-your-Lexus-to-work jobs

Enter the metropolis

Over the past decade, Saudi Arabia has been inching in the direction of reform. This has come on multiple fronts, but the key target has been opening up to international business. The Foreign Investment Act was introduced in 2000; World Trade Organisation accession came in 2005; 100 per cent foreign-owned enterprises were permitted in 2006; and in 2008, foreign investors were allowed on to the Saudi stock exchange. Moreover, Saudi Arabia is fervently committed to its plan to hit the top 10 of the world’s most competitive countries in which to do business by 2010. They’re up to number 27 so far, and more modern institutions and environments, wrapped in suitably world-class architecture, are at the front end of the continuing effort.

Foster + Partners’ landmark Al Faisaliah complex (2000) in Riyadh is soon to be joined by Al Faisaliah II, which, freed of the former height restrictions, will be over 60 storeys high. Just down the road, the new King Abdullah Financial District (KAFD) is under excavation. About 1,000 trucks roll in and out of the 1.6km² site daily, as teams dig out tower foundations and 1.5km² of subterranean parking. The masterplan, drawn up by Henning Larsen, lays out a built-up area of five million square metres, anticipating 50,000 workers, with a residential component and mixed-use elements to keep KAFD ‘alive and kicking 24/7’, says Kurek. The central Financial Plaza will be cornered by KAFD’s five tallest towers, for which the ‘right architects’ are being approached. However, less than 10 per cent of the district has been handed out thus far, and many competitions are coming up.

While KAFD is impressive, the King Abdullah Economic City (KAEC) is Saudi Arabia’s real desert jewel. Located some 100km north of Jeddah, on a section of coastline that was flat void until a few years ago, KAEC is a 168km² masterplanned metropolis. The scale is Manhattan; the context a pure no-topia. On their first site visit, delegates from American urban designer WATG were on their knees digging their Chevy 4 x 4 out of the sand.

After that, they worked more off Google Earth, teaming up with Parsons and SOM to create a scheme of astonishing detail. Developer Emaar supplied complex underlying demographics, and WATG set about designing where the chief executive was going to live, where his cook would live, where the cook would shop, where the shopkeeper would live, where the university professor would blow his nose. ‘I remember 14ft spreadsheets taped to the wall in the office,’ muses Bryan Algeo, WATG vice president. ‘We wanted to create a fully viable international city,’ adds WATG associate Meghna Andley. ‘A world city… a world-class city.’

As Algeo and Andley are talking, two large gorillas are thundering around inside my brain. In spite of the almost psychotic degree of pico-planning, nobody seems to have thought too hard about who these 1.8 million people actually are. Are they internationals or Saudis? In what proportion? In Riyadh, internationals live almost 100 per cent in compounds – are there compounds in KAEC? Do different cultures present different spatial demands?

At one point, Andley refers to KAEC’s metropolitanism as ‘like anywhere on the planet’, presumably meaning like any rich, westernised metropolis. But KAEC is in Saudi Arabia, a country where law means Sharia law, criminals are publicly beheaded by sword, and a 10,000-strong moral police force (the Muttawa) patrols the streets. In all the zooming around on Google Earth, it seems that certain fundamental questions have been lost. Would Saudis accept an internationalised metropolis? And, even if they did, would internationals be prepared to live there?

More pragmatically still, where’s the money for KAEC going to come from? The full-size project anticipates £70 billion of investment, and although it’s an initiative of the Saudi Arabian General Investment Authority (SAGIA), it is slated to be 100 per cent private. But private investors and multi-national corporations are less exuberant than they once were. The unhappy assumption that Emaar, KAEC’s Dubai-based developer, was working under at the hallucinogenic apogee of the Gulf boom was that credit was plentiful. In 2006, it was. The irony of Saudi Arabia opening up to foreign investment at the very moment that global finance implodes could not be more bitter.

So what will happen?

The answer depends on who you ask. Developers are upbeat, architects are being told to keep drawing, contractors are cautious and economists are positively hesitant. On the upside, Saudi fundamentals are good. Government and public debt are both low, at less than 20 per cent and 2 per cent of GDP respectively, and last year’s oil spike landed the kingdom with a £110 billion budget surplus.

Aggressive spending has been announced for 2009, specifically to take advantage of cheap times for commodities (steel in Saudi Arabia has fallen by 70 per cent since last summer’s highs), as well as cheap international consultants scratching around for work. At the same time, on a number of projects, the government has asked for bids to be resubmitted because quotes from three months ago now look steep – and this slows things down.

Unfortunately, as Saudi Arabia slows, it is given more time to consider what is, in effect, the quintuple whammy currently being delivered to its economy. Oil prices have dropped vertiginously from US$147 a barrel to less than US$40; oil production has dropped from 9.7 million barrels a day to 7.7 million; maintaining unused capacity is costing US$15 million a day; demand for oil-derived and non-oil exports has dropped; and the significant portfolios of Saudi-owned foreign assets have all taken a hammering.

It’s the vast sums of privately owned Saudi petrodollars (estimated in 2004 as somewhere between US$600 billion and US$1.1 trillion) that raise interesting questions, however. Since the first Gulf War of the early 1990s, deteriorating relations with the US have given ultra-rich Saudis a reason to offload their US holdings, which today’s poor performance can only strengthen. At the same time, Saudi money in other parts of the Gulf – Dubai in particular – is also likely to be drawn back. This repatriated domestic capital could be a boon for finance-hungry Saudi developers. Asked if this if happening, John Sfakianakis, chief economist at SABB bank, tentatively says, ‘I would hope so’, quickly adding, ‘it’s too early to say’. For many it may be too soon to invest. Having taken a blood-letting, the rich are inevitably looking a touch recalcitrant, if not anaemic, leaving it largely up to the government to be 2009’s ‘developer of last resort’.

With money saved up, but a bleak outlook, the Saudi government is likely to be judicious in its spending. Prioritisation is key, and its priorities are infrastructure and education, with £280 billion forthcoming over the next five years for water, electricity and transport, and 1,500 schools and several universities proposed. Industry and real estate will keep moving, but most likely at a diminished pace. Tourism and hospitality projects may stall.

What of the visionary projects? It’s possible that anything with the ‘King Abdullah’ label (KAEC, KAFD et al) has too much face attached to get binned. In a bold move, the first phase of KAEC, on site now, involves simultaneously a sea port and a resort district. These are situated at near opposite ends of the plan, thus committing the city up front to a 35km coastline. Confidence levels regarding the first phase of other downtown urban developments are relatively good. As Kurek puts it, ‘they have the money’, and the first round of towers are felt to be reasonably secure. Regarding subsequent phases, John Harris, head of Saudi Arabia operations at Jones Lang LaSalle, is breezily thoughtful: ‘I guess the jury’s out.’

Some of the most egregiously gratuitous proposals have already been called in, however. Kingdom Holding’s putatively one-mile-high Jeddah tower seems to be on hold, and well it may be, given how free it is from real demand. With plenty of desert around, and no call for hyper-density, how useful is a mile-high building? Say you arrive at your top-floor office and realise you’ve left the keys to the executive washroom in the glove box of your car, you’re faced with a two-mile round trip. Just to have a pee. An executive pee that is.

The tilt of the world right now is forcing us to crawl back from large desires towards real need. As much as Dubai was once a paragon for the Middle East, it’s now becoming a parable. And what Saudi Arabia needs, in truth, are big pipes and small homes.

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